An Interview with Joel Slemrod on Tax Policy

On current taxation of employer-provided health insurance: "Well, it certainly reduces the after-tax price of health insurance for people. The problem is that it reduces the price below the true social cost, so that people acting in their own family's interest, are, at the margin, buying insurance where the value to them is actually less than the true cost. In a word, we are subsidizing high-deductible, low copay insurance policies and, given the upward trend we are seeing in the fraction of our gross national product that goes to health care, I think we ought to be moving toward reducing or eliminating such subsidies. Not only that, it's a very unattractive sort of subsidy, because the subsidy rate is dependent on the household's marginal tax rate, so the subsidy rate is highest for the highest-income people. And I just don't think that even people who would argue for a subsidy would favor such regressivity if they were designing a subsidy scheme from scratch. The reason to be wary about abandoning the subsidy is that it supports the system of employer-provided health insurance, which spreads risks across employees and offsets the problem of adverse selection that can plague health insurance markets; before we eliminate the subsidy entirely, we need to have other policies in place to prevent a collapse of efficient markets for health insurance."

On how high-income people react to high tax rates: "My own view ... is that certainly high-income people notice taxes, and they react to taxes in ways that lower their exposure to taxes. The evidence for taxes substantially affecting what one might call "real" behavior, such as labor supply or savings, is not as strong as the evidence regarding another class of behaviors we might label "avoidance.""

On how saving is affected by fear of nuclear war: "I have three articles that try to estimate whether, when people seriously think there's a chance of a nuclear conflagration, this belief affects their saving behavior. In short, do people believe we ought "to eat, drink, and be merry, for tomorrow we die?" To test this hypothesis I looked at aggregate saving over time in the United States, across countries, and micro data within the United States, and in all three cases found that when people think, or profess to think, there's a chance of a nuclear war, their saving rate goes down, just as economic theory would predict."

On how people time their deaths to reduce estate taxes: "We looked at estate tax return data from the history of the U.S. estate tax and found that when the estate tax was going to change — go up or down — in an anticipated way, then the distribution of deaths around that date was not symmetric. When the tax rate was going to increase, more people died before the rate rose, and when the tax rate was going to be lowered, people held on and more people died after the decrease. Since we wrote the paper, the general "death elasticity" finding has been replicated using data from episodes in Australia and Sweden when they ended their estate taxes. Those studies found evidence that people delayed their death to save their heirs' money, in some cases, millions and millions of dollars."